Former Havens Steel officers move to dismiss class action

Attorneys for five former corporate officials at bankrupt Havens Steel Co. argued in a legal filing Tuesday that they were not required to diversify the holdings of an employee stock-ownership plan that lost all its value when the company filed for bankruptcy.

Arguing in a memorandum supporting their motion to dismiss a class-action lawsuit brought by former employees, the lawyers said the suit wrongly blames the officials' corporate decisions for damaging the employee stock-ownership plan.

"Because the conduct plaintiffs complain of in this case involved decisions the defendants made in their corporate capacities, plaintiffs' claims fail," the lawyers said.

The five defendants in the lawsuit were corporate directors as well as members of the ESOP's administrative committee or served the ESOP's trustee, the filing said, but not all committee and board members were sued.

"The defendants, like the plaintiffs, were also all ESOP participants and also collectively lost millions of dollars when their accounts became valueless," the memorandum said.

If the case survives the challenge, it could grow to 500 plaintiffs. U.S. District Judge Scott Wright certified a class of former employees on Dec. 5 in the suit, which was filed in November 2004 with eight former Havens employees as plaintiffs.

The suit alleged that stock in the structural steel manufacturing company became worthless because of the company officials' actions and that the five directors had an obligation as fiduciaries of the stock ownership plan to protect its value.

By allegedly paying themselves "huge bonuses" and investing solely in Havens stock, the officers allegedly "disregarded the interests" of the employee stock-ownership plan's participants, an amended complaint filed in November said.

But the memorandum arguing for summary judgment said:

• None of the defendants received bonuses in 2002.
• Federal law doesn't require ESOPs to diversify.
• Plaintiffs can't prove that the ESOP's continued investment in Havens stock was unreasonable.
• Selling Havens stock to buy other companies' stock would have been difficult because no prospective buyers for Havens Steel Co. stock were known to the company.

Havens' demise was caused by events the defendants couldn't control, the memorandum said, including high steel prices, a slowdown in construction in 2002 and a lender foreclosing on Havens' operating credit.

"Plaintiffs are looking for someone to blame for HSC's misfortune and have zeroed in on the defendants as targets for their disappointment and frustration," the defendants' lawyers said.

The case hasn't been restricted by the bankruptcy court's automatic stay on suits against companies undergoing reorganization because the company isn't named as a defendant.

Former CEO Kenneth McCullough and former officers Donald Price, Jesse Bechtold, Tom Collins and Steven Cowan, were named as defendants in the suit.

The company filed for bankruptcy in March 2004, rendering the employees' stock worthless, the suit said. The complaint alleges that the officers breached their fiduciary duties to the plan from Dec. 21, 2001, through July 22, 2004.

Eugene Balloum of Shook Hardy & Bacon LLP represents McCullough. Blackwell Sanders Peper Martin LLP represents Bechtold, Price, Collins and Cowan.

The named plaintiffs are Jack and Janet Kirse of Lee's Summit; Betty Jean Pitchford of Kansas City, Kan.; Lori Michaels, James Hall and Glenna Grafton of Kansas City; Ronald Berr of Quenemo, Kan.; and Keith Feuerborn of Ottawa, Kan.

Wright designated Neil Sader and Greg Garvin of Kansas City-based Sader & Garvin LLC as class counsel, along with Andrew Rainer of McRoberts Roberts & Rainer LLP in Boston.

The case is scheduled for trial April 3 in U.S. District Court in Kansas City.